21. An analyst is considering investing in the following bonds:

If investors expect the rate of inflation to remain constant over the next 15 years, will the risk premium for Bond 2 most likely be the same, higher, or lower compared to the risk premium for:

Select exactly 1 answers from the following: A. B. C. D.
答案和详解如下！
Feedback: Correct answer: D

2006 Level I Program Readings, 揟he Financial Environment: Markets, Institutions, and Interest Rates,?Ch. 4, pp. 130-143, including Box on pp. 142-143, Fundamentals of Financial Management, 10th edition, Eugene F. Brigham and Joel F. Houston (Dryden, 1998), pp. 206-210

2006 Modular Level I, Vol. II, pp. 308-312

Study Session 5-25-g, h

explain the effect of inflation on the real rate of return earned by financial securities and by physical assets;

describe default risk, liquidity risk, and maturity risk premiums

Bond 2 has greater default risk than Bond 1; Bond 2 has less maturity risk than Bond 3.

D